Table 16–5 identifies twenty-one industries that were surveyed on their preferential process for trade-offs. Obviously, there are variables that affect each decision. The data in the table reflect the interviewees’ general responses, neglecting external considerations, which might have altered the order of preference.
Table 16–6 shows the relative grouping of Table 16–5 into four categories: project- driven, non–project-driven, nonprofit, and banks.
In all projects in the banking industry, whether regulated or nonregulated, cost is the first resource to be sacrificed. The major reason for this trade-off is that banks in general do not have a quantitative estimation of what actual costs they incur in providing a given service.
One example of this phenomenon is that a number of commercial banks heavily emphasize the use of Functional Cost Analysis,a publication of the Federal Reserve, for pricing their services. This publication is a summary of data received from member banks, of which the user is one. This results in questionable output because of inaccuracies of the input.
TABLE 16–4. SEQUENCE OF RESOURCES SACRIFICED BASED ON TYPE OF CONTRACT Firm- Fixed-Price-
Fixed- Incentive- Cost-Plus- Cost-Plus- Cost-Plus-
Price Fee Cost Cost Incentive- Award-Fee Fixed-Fee
(FFP) (FPIF) Contract Sharing Fee (CPIF) (CPAF) (CPFF)
Time 2 1 2 2 1 2 2
Cost 1 3 3 3 3 1 1
Performance 3 2 1 1 2 3 3
1 = first to be sacrificed.
2 = second to be sacrificed.
3 = third to be sacrificed.
In cases where federal regulations prescribe time constraints, cost is the only resource of consideration, since performance standards are also delineated by regulatory bodies.
In nonregulated banking projects, the next resource to be sacrificed depends on the competitive environment. When other competitors have developed a new service or prod- uct that a particular bank does not yet offer, then the resource of time will be less critical
Industry Trade-Off Preferences 647
TABLE 16–5. INDUSTRY GENERAL PREFERENCE FOR TRADE-OFFS
Industry Time Cost Performance
Construction 1 3 2
Chemical 2 1 3
Electronics 2 3 1
Automotive manu. 2 1 3
Data processing 2 1 3
Government 2 1 3
Health (nonprofit) 2 3 1
Medicine (profit) 1 3 2
Nuclear 2 1 3
Manu. (plastics) 2 3 1
Manu. (metals) 1 2 3
Consulting (mgt.) 2 1 3
Consulting (eng.) 3 1 2
Office products 2 1 3
Machine tool 2 1 3
Oil 2 1 3
Primary batteries 1 3 2
Utilities 1 3 2
Aerospace 2 1 3
Retailing 3 2 1
Banking 2 1 3
Note:Numbers in table indicate the order (first, second, third) in which the three parameters are sacrificed.
TABLE 16–6. SPECIAL CASES
Type of Organization Project-Driven
Organizations Banks
Early
Life- Late-Life- Non–Project-
Cycle Cycle Driven Nonprofit
Phases Phases Organizations Organizations Leader Follower
Time 2 1 1 2 3 2
Cost 1 3 3 3 1 1
Performance 3 2 2 1 2 3
than the performance criteria. A specific case is the development of the automatic teller machine (ATM). After the initial introduction of the system by some banks (leaders), the remainder of the competitors (followers) chose to provide a more advanced ATM with lit- tle consideration for the time involved for procurement and installation. On the other hand, with the introduction of negotiable order of withdrawal (NOW) accounts, the January 1, 1981, change in federal regulations allowed banks and savings and loans to offer interest- bearing checking accounts. The ensuing scramble to offer the service by that date led to varying performance levels, especially on the part of savings and loans. In this instance the competitors sacrificed performance in order to provide a timely service.
In some banking projects, the time factor is extremely important. A number of proj- ects depend on federal laws. The date that a specific law goes into effect sets the deadline for the project.
Generally, in a nonprofit organization, performance is the first resource that will be compromised. The United Way, free clinics, March of Dimes, American Cancer Society, and Goodwill are among the many nonprofit agencies that serve community needs. They derive their income from donations and/or federal grants, and this funding mechanism places a major constraint on their operations. Cost overruns are prohibited by the very na- ture of the organization. Inexperienced staff and time constraints result in poor customer service.
The non–project-driven organization is structured along the lines of the traditional vertical hierarchy. Functional managers in areas such as marketing, engineering, account- ing, and sales are involved in planning, organizing, staffing, and controlling their func- tional areas. Many projects that materialize, specifically in a manufacturing concern, are a result of a need to improve a product or process and can be initiated by customer request, competitive climate, or internal operations. The first resource to be sacrificed in the non–project-driven organization is time, followed by performance and cost, respectively.
In most manufacturing concerns, budgetary constraints outweigh performance criteria.
In a non–project-driven organization, new projects will take a back seat to the day-to- day operations of the functional departments. The organizational funds are allocated to in- dividual departments rather than to the project itself. When functional managers are re- quired to maintain a certain productivity level in addition to supporting projects, their main emphasis will be on operations at the expense of project development. When it becomes necessary for the firm to curtail costs, special projects will be deleted in order to maintain corporate profit margins.
Resource trade-offs in a project-driven organization depend on the life-cycle phase of a given project. During the conceptual, definition, and production phases and into the op- erational phase of the project, the trade-off priorities are cost first, then time, and finally performance. In these early planning phases the project is being designed to meet certain performance and time standards. At this point the cost estimates are based on the figures supplied to the project manager by the functional managers.
During the operational phase the cost factor increases in importance over time and performance, both of which begin to decrease. In this phase the organization attempts to recover its investment in the project and therefore emphasizes cost control. The perfor- mance standards may have been compromised, and the project may be behind schedule, but management will analyze the cost figures to judge the success of the project.
The project-driven organization is unique in that the resource trade-offs may vary in priority, depending on the specific project. Research and development projects may have a fixed performance level, whereas construction projects normally are constrained by a date of completion.